Preparing Your Business For Sale With A Business Sale Consultant

 

Over the next decade, six out of ten U.S. business owners will be making plans to sell their companies. This is a significant increase over prior years. Baby-boomers do make up a noteworthy percentage of those who are looking at selling their businesses to fund their retirement. For most, many years of blood, sweat, tears and dollars have been invested in their business. The query is “When I sell my business, will it be a positive experience with an acceptable outcome both financially and psychologically?”

“It should be the biggest pay-day EVER for a business owner!”

 

At some point with every business owner there will be a sale and exit from the business.   Before this happens, it is essential that each business owner know how to prepare their business for sale and what their business is worth on the market. We have the expertise and knowledge to assist you in preparing your business for sale.

 

Valuing Your Business Accurately Is Essential

 

Before undertaking the appraisal, we will put time into sprucing up your business and its financials. Effort spent at the outside will pay dividends down the road.

In placing a price tag on your business, you need to consider:

• What factors are most important to buyers?
• How can you boost these important factors before the sale?
• How might your accountant adjust your financial statements, before showing them to potential buyers?
• What are some of the methods and formulas that are commonly used to put a price tag on a business?
• If you’re only selling part of the business, how does that affect the price?

 

In order to properly appraise a business is that you make a Business Appraiser a key player on your selling team. Our strategic connections with professionals in this field will align you with an Appraiser that will provide you with a quality business valuation.

 

 

Buyers Focus on Cash Flow

Buyers tend to look at a business in a much more cut-and-dried way. The essential factors that most buyers are interested in are earnings (net income after all expenses, but before capital expenditures or debt payments) and cash flow (the inflow and outflow of cash in the business.)

Buyers want to know that your business will provide a stream of dollars that’s predictable, steady, and high. Some buyers prefer to look specifically at cash-flow statements, while others will focus on your income statement to examine earnings before interest and taxes (EBIT). Still others will place the most weight on earnings before interest, taxes, and depreciation (EBITD). The point is, your income stream is key. You need to prove the size and regularity of your positive cash flow. This is where we review your historical financial data and recommend

where and how to properly recast the financial statements for the last three to five years, and draw up projected statements that reflect how the business would look with a new owner.

 

Preparation of a Business Plan

Buyers are most concerned about the future earnings of your business, and less concerned about the past. However, the future is difficult to predict with any degree of certainty, so most valuations are largely based on your historical financial statements. You will, however, be expected to provide projected financial statements that show how the business might be expected to perform after the sale. You may also want to emphasize your future plans: new products in development, promising new distribution methods, and other items that should contribute to income growth in the future. We will prepare a complete Business Plan which is a good selling tool for a business owner.

Verify Financial Data and Physical Assets

A secondary consideration for most buyers will be the verifiable assets of the business: the real estate, equipment, patents or trademarks, and even such things as inventory, customer lists, and contractual relationships you’ve established. These items are the buyer’s “insurance” — things that can be sold or used elsewhere if the earnings stream dries up.

Buyers will examine your key financial ratios to see how your business compares to the industry average, to other acquisitions they may be considering, and to the criteria for purchases they have set up for themselves. A key consideration is that your business has a clean balance sheet with low debt. The buyer may have to increase the debt burden in order to make the acquisition, and won’t want total debt to be too heavy for the business to support. Furthermore, a low debt load is more evidence that your business has a strong flow of earnings. We will complete a total review and prepare a presentation of these areas.

 

Operations and Human Resources

Some buyers will be interested in knowing that you have an experienced manager or team of employees in place to take over when you leave. They’ll want to know that you have groomed your successors, and that the successors will stick around. Other buyers will be looking for a business to actively manage, and will want to avoid long employment contracts with existing managers. We will review and structure your operations plan to maximize the potential sale.

Buyers Will Demand Documentation of Business Assets and Financial Health

Buyers will also prefer that you have a lot of documentation available for your business. They’ll be taking a close look at what the papers actually say during the due diligence process, as negotiations proceed. But the very existence of documentation like sales reports, production reports, employee organization charts, job descriptions, operations manuals serves to tell your buyer a lot about your business, and also increases his or her comfort level with the professionalism of your management style. We will prepare an expected agenda as it relates to the necessary documentation for presentation. This would include:

Improve Your Income Statement

Since cash is king, the most essential step you’ll want to take is to clean up your income statement

Improve Your Assets

Take a good look at the assets of the business and make recommendations on selling off or disposing of any unproductive assets or unsalable inventory.

Clean Up Potential Liabilities

We will review and make recommendations on any pending or potential legal problems, such as product liability claims, employee lawsuits, IRS audits, insurance disputes, etc

 

Address Environmental Issues

One concern that buyers increasingly have is whether there might be any lurking environmental problems. A review will be conducted where appropriate.

 

 

Preparation for Selling Your Business is Key to Maximizing the Sales Value

The value of a typical small business should be greater than the total values of its tangible assets. For a buyer, the appeal is that an ongoing business has everything necessary for successful operation — equipment, location, and inventory if applicable, not to mention experienced employees, suppliers, business processes, and a customer list — all in place, in the right amounts. We can assist you in this critical preparation of your business in order to sell at a fair market value.

 

Call (762) 448-9049 to discuss the steps with a business sale consultant.